DOJ, CFTC and SEC Settle Spoofing Fraud Charges with JP Morgan for $920 Million
JP Morgan Chase (“JP Morgan”) is not having a positive year when it comes to government enforcement. JP Morgan is at the brink of a multi-billion dollar FCPA settlement for its involvement in the 1MDB corruption scandal in Malaysia. Add to this a few regulatory enforcement actions: an SEC settlement for manipulative trading U.S. Treasury securities; and a FINRA fine of $1.1 million for failure to disclose allegations of misconduct.
In its latest enforcement action, DOJ settled criminal charges against JP Morgan for $920 million for two schemes: (1) tens of thousands of spoofing incidents in precious metals futures contracts; and (2) thousands of episode of unlawful trading in US Treasury markets for futures and secondary cash market for US Treasury notes and bonds.
To resolve the matter, JP Morgan entered into a deferred prosecution agreement (“DPA”) with two counts of wire fraud in exchange for a payment of $920 million in criminal penalty, disgorgement and victim compensation. The criminal monetary penalty payment will be credited against payments made to the Commodity Futures Trading Commission (“CFTC”), and the disgorgement credited against payments made to the Securities and Exchange Commission (“SEC”).
Simultaneous with the DOJ settlement, JP Morgan entered into settlement agreements with the CFTC and SEC. The CFTC settled with JP Morgan for a $436 million civil penalty. The SEC settled with JP Morgan agreed to pay $10 million in disgorgement and a civil monetary penalty of $25 million.
DOJ reached this resolution based on a number of factors, including the nature and seriousness of the offense of unlawful trading activity; failure to fully and voluntarily self-disclose the offense conduct; JP Morgan’s prior criminal history, including a guilty plea in 2015 for similar misconduct in the foreign exchange spot market.
DOJ credited JP Morgan for its remedial measures, including suspending and termination individuals involved in the conduct, adopting heightened internal controls, and substantially increasing compliance resources. JP Morgan reassessed and enhanced their market conduct compliance program and internal controls. These enhancements included hiring hundreds of new compliance officers, improving their anti-fraud and manipulation training and policies, revising their surveillance programs, enhancing supervision of traders, implementing independent quality assurance testing. Based on all of these remedial measures, DOJ determined that an independent compliance monitor was not needed.
Precious Metals Futures Contract
Between approximately March 2008 and August 2016, traders and sellers staff for precious metals engaged in a scheme to defraud with the purchase and sale of gold, silver, platinum and palladium futures contracts that traded on the New York Mercantile Exchange, Inc. and Commodity Exchange, Inc. In tens of thousands of instances, traders entered into buy and sale orders with the intent to cancel those orders before execution in order to deceive and profit by injecting false information in the market for precious metals futures contracts.
Two traders pleaded guilty to related charges prior to the settlement. John Edmonds, one of the traders, pleaded guilty in October 2018 to one count of commodities fraud and one count of conspiracy to commit wire fraud, commodities fraud, price manipulation and spoofing. Christian Trunz pleaded guilty in August 2019 to one count of conspiracy to engaged in spoofing and one count of spoofing in connection with his precious metals futures contracts trading.
In November 2019, DOJ obtained a superseding indictment against three former JP Morgan traders and one former salesperson for participation in an alleged racketeering conspiracy relating to manipulation of precious metals futures contracts markets.
US Treasury Futures Contract
Between April 2008 and January 2016, JP Morgan traders on US Treasuries engaged in a scheme to defraud the purchase and sale of US Treasury futures contracts that traded on the Chicago Board of Trade. In thousands of instances, US Treasury traders placed orders to buy and sell US Treasury products with the intent to cancel the orders before execution with the intent to deceive other market participants through injecting false and misleading information.